Debit Card

AAA

DEFINITION of 'Debit Card'

A payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition, debit cards, also called check cards, offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard. Unlike credit cards, they do not allow the user to go into debt, except perhaps for small negative balances that might be incurred if the account holder has signed up for overdraft coverage. However, debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.

INVESTOPEDIA EXPLAINS 'Debit Card'

Debit cards serve a dual purpose: they allow the user to withdraw money from her checking account through an ATM or through the cash-back function many merchants offer at the point of sale, and they also allow the user to make purchases. ATM cards, by contrast, only allow the user to withdraw money from an ATM, while credit cards only allow purchases unless the credit card holder has a PIN-enabled cash advance feature (and the cash advance will incur interest, unlike withdrawing cash from a checking account).

Debit card purchases can usually be made with or without a PIN. If the card has a major payment processor’s logo, it can be run as a credit card, and the cardholder won’t need to take the risk of exposing their PIN number. The money will still come directly out of the cardholder’s checking account and there won’t be any finance charges when the debit card is run as a credit card. Some debit cards also offer reward programs similar to credit card reward programs, such as 1% back on all purchases.

Every transaction made with a debit or check card will appear on the account holder’s monthly statement, making it easy to keep track of purchases. Consumers are effectively making their purchases in cash – that is, with money they actually have, as opposed to money borrowed on credit – but unlike cash purchases, there’s no way to lose track of amounts spent on a debit card. And while lost or stolen cash is gone forever, a lost or stolen check card can be reported to the bank, which can deactivate the card, remove any fraudulent transactions from the cardholder’s account and issue a new card.

RELATED TERMS
  1. Payroll Card

    A prepaid card onto which an employer loads an employee’s wages ...
  2. Private Label Credit Card

    Many stores offer private label credit cards to their customers ...
  3. Personal Identification Number ...

    A numerical code used in many electronic financial transactions. ...
  4. Credit Criteria

    The various financial characteristics that lenders analyze when ...
  5. Credit Card

    A card issued by a financial company giving the holder an option ...
  6. Debit

    An accounting entry that results in either an increase in assets ...
RELATED FAQS
  1. How do prepaid debit cards work?

    Prepaid debit cards work almost like a combination of a credit card and a checking account. Prepaid debit cards are issued ... Read Full Answer >>
  2. How has the shift to e-commerce affected the profitability of companies in credit ...

    The shift to e-commerce has positively affected the profitability of companies in the credit services industry. However, ... Read Full Answer >>
  3. Are credit cards and debit cards considered debt instruments?

    Consumer debt instruments allow people to borrow money at specific interest rates. In recent years, the credit industry has ... Read Full Answer >>
  4. How does your checking account affect your credit score?

    Your credit report provides a snapshot for prospective lenders, landlords and employers of how you handle credit. For any ... Read Full Answer >>
  5. What are the pros and cons of online checking accounts?

    Online banking offers a convenient alternative to keeping your checking account with a brick-and-mortar bank. With an online ... Read Full Answer >>
  6. What is the banking sector?

    The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Credit, Debit And Charge: Sizing Up The Cards In Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.
  2. Credit & Loans

    Debit Card Fraud: Is Your Money At Risk?

    As criminals are becoming more savvy, your money is becoming more vulnerable.
  3. Budgeting

    Should You Pay In Cash?

    Avoiding all forms of plastic payment can do wonders for your stress level and pocket book.
  4. Insurance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  5. Savings

    All About Banking

    This tutorial will tell you everything you need to know about how checking and savings accounts work.
  6. Options & Futures

    Savings Accounts Not Always The Best Place For Cash Assets

    Money market funds may be all that stands between you and increasing your wealth.
  7. Credit & Loans

    5 ATM Scams That Can Break The Bank

    Don't get scorched by ATM thieves who want to burn a hole in your wallet.
  8. Options & Futures

    401(k) Debit Cards: Taking A Swipe At Your Retirement Savings

    This is just another more convenient way to borrow from your plan. But at what cost?
  9. Savings

    Expat's Guide To Bank Accounts In The Philippines

    You'll need an ACR I-Card and other documents to open a bank account in the Philippines. Be sure to read the fine print about how much money is insured.
  10. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center